Question 1

Which of the following best describes the 'theory of the firm' in microeconomics?

Accepted Answer

It describes how a firm makes cost-minimizing production decisions and how its cost varies with output.

Question 2

A firm is producing output using labor and capital. If the amount of capital is fixed and the firm increases labor input, which law describes the eventual decrease in additional output from each extra unit of labor?

Accepted Answer

Law of diminishing marginal returns

Question 3

Suppose a firm’s production function is given by $$q = F(K, L)$$, where $$K is $$capital and $$L is $$labor. What does this function represent?

Accepted Answer

The highest output that can be produced for every specified combination of inputs

Question 4

If a firm doubles all its inputs and its output more than doubles, which type of returns to scale is the firm experiencing?

Accepted Answer

Increasing returns to scale

Question 5

Given the following data for a firm: Labor input ($$L) = 5$$, Total output ($$q) = 120. $$What is the average product of labor ($$AP_L$$)?

Accepted Answer

$$AP_L = \frac{120}{5} = 24$$

Question 6

If the marginal product of labor ($$MP_L) is $$negative, what does this imply about the total output as more labor is added?

Accepted Answer

Total output is decreasing.

Question 7

Which of the following best describes an isoquant?

Accepted Answer

A curve showing all combinations of inputs that yield the same output.

Question 8

The marginal rate of technical substitution (MRTS) between labor and capital is defined as:

Accepted Answer

$$MRTS = \frac{\Delta K}{\Delta L}$$ for a fixed level of output

Question 9

Which production function describes a situation where only one combination of labor and capital can be used to produce each level of output?

Accepted Answer

Fixed-proportions (Leontief) production function

Question 10

A firm in the carpet industry finds that doubling all inputs leads to less than double the output for large plants, but output doubles for small plants. What does this suggest about returns to scale?

Accepted Answer

Constant returns to scale for small plants and decreasing returns to scale for large plants

Question 11

If a firm’s marginal product of labor ($$MP_L) is $$greater than its average product of labor ($$AP_L$$), what happens to the average product as more labor is added?

Accepted Answer

The average product increases.

Question 12

Which of the following is most likely to increase labor productivity in the long run?

Accepted Answer

Technological change that allows factors of production to be used more efficiently

Question 13

Suppose a firm’s production function exhibits constant returns to scale. If all inputs are tripled, what happens to output?

Accepted Answer

Output is tripled.

Question 14

In the context of isoquants, what does a straight-line isoquant indicate about the relationship between inputs?

Accepted Answer

Inputs are perfect substitutes.

Question 15

If the marginal product of capital ($$MP_K) $$decreases as more capital is added, holding labor constant, which concept does this illustrate?

Accepted Answer

Diminishing marginal returns to capital

Question 16

A wheat farm in the United States uses a capital-intensive technology, while a farm in a developing country uses a labor-intensive technology. What does this imply about the marginal rate of technical substitution (MRTS) in each country?

Accepted Answer

The MRTS is higher in the United States.

Question 17

Which of the following is NOT a factor of production?

Accepted Answer

Consumer demand

Question 18

If a firm’s marginal product of labor ($$MP_L) is $$calculated as $$MP_L = \frac{\Delta q}{\Delta L}$$, what does $$\Delta q$$ represent?

Accepted Answer

Change in total output

Question 19

Which statement best explains why firms exist, according to microeconomic theory?

Accepted Answer

Firms exist to coordinate production and avoid the need for individual bargaining over every task.

Production: The Theory of the Firm and Production Decisions

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